Horizon Scanning | UK Real Estate 2019

Urban Regeneration: collaboration, communication and community

Urban regeneration is at a turning point. Even in our present polarised political climate, few would deny that there is a problem with housing capacity and affordability in the UK. Acknowledging the problem is, seemingly, the limit of the consensus. Perhaps one more thing is certain: private developers are inherently a key part of the solution.

In certain quarters, public trust in property developers can be low. In some ways, it is easy to understand why. Where once stood Estates, now loom shiny “Quarters”, “Districts” and “Plazas”. Development and regeneration has become conflated with gentrification and the perception that new developments are unaffordable and properties owned by foreign investors lie empty. Developers are easily cast as villains to take the rap for political failures – as bourgeois bogeymen building balance sheets rather than communities. Social media makes people more aware of schemes and can be a key tool to enhance collaboration, but can also quickly amplify discontent and fuel opposition based on little more than 280 characters.

The revised National Planning Policy Framework published in July 2018 provided housing policies designed to assist the Government’s planning agenda, but these alone are not enough. Regeneration needs to be about more than bricks and mortar, steel and glass: “schemes” are communities; “units” are homes. Genuine engagement with residents and other local organisations and institutions early in the development process is crucial and will ensure people feel part of changes to their neighbourhoods. Members of planning committees are now much more attuned to this and developers need to be able to demonstrate how they have amended their proposals following consultation with the local community.

Major planning applications often now need to be accompanied by viability assessments so local authorities and interested parties can better understand the logic behind the “planning package” on offer and the “maximum reasonable” affordable housing provision.

On large sites, effective interim use strategies can also pay dividends for the community. Excellent examples, including spaces for fledgling businesses, community groups and even libraries can already be found. By way of example, the former Heygate Estate at Elephant and Castle is used by the local community for a variety of interim uses – gardening, exercise, study space, arts projects, community events, etc. The Artworks Elephant and the Southwark Construction Skill Centre were also created for the local community. The former is a hub built from repurposed shipping containers to contain food and drink outlets and accommodation for small creative businesses and studios; the latter is a training facility tailored to deliver an innovative “real life” construction training experience for those who live and work in Southwark. The benefits of inviting people behind the hoarding in this way are tangible.

Developers also need to communicate better the benefits of their work. Too often the huge social, environmental and community benefits of urban regeneration can be lost in the narrative of gentrification and displacement and a fear of change and the unknown. Few people would defend sub-standard housing stock, neglected public spaces and struggling infrastructure. Put simply, people want to live in good spaces. Developers need to convince people that creating good spaces is exactly what they strive to do and by working together, the spaces will be better.

UK housing faces a crisis and developers and the property industry that supports them are without doubt key to finding the solution.

Ever since the unexpected referendum result in 2016, the nation has been in a curious state of befuddlement and limbo. The process surrounding the UK’s departure from the EU has been enveloped by a dense and numbing political fog, punctuated by seemingly erratic whirlwinds of frenetic activity. Progress as to the terms of our exit - and future relationship - appears simultaneously to stand still, reverse and speed up. But, with approximately three months to go until 29 March 2019, the storm shows no sign of abating yet – if the last few weeks are anything to go by … that said, we can still usefully look at what, if any, progress has been made this year - and what effect this has had on the real estate market.

"The process surrounding the UK’s departure from the EU has been enveloped by a dense and numbing political fog"

In the 12 months ending Q3 2018, the wholesale and retail trade sector saw the second highest underlying of new company insolvencies in the UK with a number of household names dramatically reducing their real estate footprint or disappearing altogether. Casual dining and fashion have been particularly affected, with the number of CVAs for Q3 2018 rising by 200% compared with the same period in 2017.

"The number of CVAs for Q3 2018 rising by 200% compared with the same period in 2017"

In recent years, an increasing number of jurisdictions across the globe have either introduced new or strengthened existing rules controlling foreign investment: the UK is no exception and the trend for even greater transparency in UK real estate has continued, especially where overseas investors are involved, driven by the UK Government’s wider push to tackle corruption. Here we look at a number of the key changes which overseas investors in UK real estate need to be aware of; the likely impact of those changes and the reaction from overseas investors so far.

"$13.7 billion of overseas capital piled into the City in 2018 attracted by favourable occupancy rates, dependable investments with yields higher than elsewhere in Europe.” (Cushman & Wakefield: Winning Growth in Cities)

It is only in recent months that judgments on the new Electronic Communication Code (the “Code”) have started to emerge from the Upper Tribunal (which now decides telecoms disputes). They confirm what many businesses and individuals have sensed over the last year; that what has been referred to by the Tribunal as “the human right to mobile telephony” is likely to trump the human right to enjoyment of one’s own property. The new Code came into force on 28 December 2017 making it much easier for telecoms operators to acquire rights to install and maintain electronic communications equipment on, under or over land. In the absence of reaching agreement with the relevant landowner, an operator has the right to apply to the Upper Tribunal for an “enforced agreement”.

"The human right to mobile telephony is likely to trump the human right to enjoyment of one’s own property"

What are the UK tax questions that matter most to the real estate sector? How will we be taxed on our income and gains, how much SDLT will we need to pay and what capital allowances are available are invariably near the top of the list. At least for some investors, the answers to all of these will be changing over the next couple of years. Add to this a new 2% digital services tax that will apply regardless of physical presence and there is plenty to think about following the 2018 Budget.

"As previously announced, the taxation of non-UK residents in relation to UK property is to be fundamentally changed"

Urban regeneration is at a turning point. Even in our present polarised political climate, few would deny that there is a problem with housing capacity and affordability in the UK. Acknowledging the problem is, seemingly, the limit of the consensus. Perhaps one more thing is certain: private developers are inherently a key part of the solution.

"Genuine engagement with residents and other local organisations and institutions early in the development process is crucial"

From online estate agents to smart buildings, PropTech is infiltrating the real estate sector in many different ways; in some cases seeking to replace antiquated and inefficient systems and in others introducing new technologies to drive forward an industry that has traditionally been resistant to change. Few Real Estate professionals, whether millennials or baby boomers, would deny that PropTech is changing the Real Estate industry.

"Experts are predicting that technology will play an increasingly prominent role in how occupiers use and operate their Real Estate"